Why does ad-supported software inspire such antagonism?

Why does ad-supported software inspire such antagonism?

Summary: Phil Wainewright "responded" yesterday to my defense of ad-based software, or to be more specific, Microsoft's ruminations regarding the viability of offering free or low cost versions of some of their products using ad sales as a revenue source.

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TOPICS: Microsoft
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Phil Wainewright "responded" yesterday to my defense of ad-based software, or to be more specific, Microsoft's ruminations regarding the viability of offering free or low cost versions of some of their products using ad sales as a revenue source. I used quotes around "responded" because he delivered his arguments while doing the verbal equivalent of unloading his Tommy gun Valentine's Day Massacre-style into my chest (okay, perhaps I exaggerate, I do know that more money can be generated from targeted advertising.but I do think it's not necessary to chop your debate partner's head off - it makes things messy at the restaurant). But hey, I've faced the Talkbacks, and the Talkbacks are worse. Besides, I'm sure a blogger brawl would make good theater.

Anyway, I'll go through his response point by point. Just to add some perspective to my original post, I never said there was an open and shut case for ad-supported Microsoft software. It may NOT be a good idea.

I am sure, though, that if it is a bad idea, the harm will fall more on Microsoft in the form of lost revenue, and not on customers, who at worst get a free product that proves to be mildly annoying due to excessive use of ads. So, I fail to see why the proposal inspires such antagonism. Microsoft takes all the risk. All everyone else has to do is decide whether or not to use ad-supported products.

There are several different ways of funding on-demand applications. Putting ads in them is one, but it's not the basis for building a viable, durable business.

Perhaps, but I'm not suggesting Microsoft ditch entirely a business model built on sale of software. Ad-supported versions of Office would exist alongside more traditional purchased software. As I noted, such free software might attract more users, thus creating new revenue opportunities for Microsoft, not to mention giving people legal access to software to which they otherwise wouldn't have access.

John mentions how some people prefer to use open source software as an alternative to paying Microsoft's extortionate, monopoly-based licence fees, and that ad-funded Microsoft apps would be an alternative source of 'free' software.

It always astounds me how much fans of, say, OpenOffice, will out of one corner of their mouth argue OpenOffice is better than, and fully compatible with, Office, then out of the other mutter that the market is locked up irretrievably by Microsoft Office and thus government must pry it open to competition.  Irrespective of that, it's a fact that the price is set at a point that the market will bear. There is a case to be made that the price may have to go down in response to the coming-of-age of free alternatives. It's NOT the case, though, that alternatives don't exist, and that people have no choice but to pay the prices Microsoft charges for its products.

Either open source software is a competitor, or it isn't. You can't have it both ways.

Ad-funded software already exists, though it's most successful on the web. Google makes stacks of money from ads, as does MSN, MSNBC, CNN...or even ZDNet. Where this model has had more mixed success is in standalone software. Gator pretty much destroyed the image of ad-supported free desktop software, but that doesn't mean others haven't done it well. Paltalk, a voice chat tool I use when I'm in a mood to get into an argument about politics, economics or religion, offers free accounts supported by ads. Paltalk seems able to make reasonable amounts of money.

Is the ad model perfect? Not hardly. But it works if CAREFUL thought is given to its implementation. Web sites have expended the effort to figure out what works (Yahoo and Google are both companies almost completely supported by ad revenue). I fail to see why it is impossible to do the same in standalone software.

The flaw in this argument of course is the amount of advertising Microsoft would have to sell to recoup its absurdly high prices.

How absurdly high are the prices? How much do most consumers of Windows pay for the operating system? About $30, because most get it pre-installed on new machines from bulk-resellers such as Dell. $30 over the course of a few years (the lifespan of a particular version of Windows) is not a lot of money to have to recoup through ad sales.

Office is a bit more difficult, because the price is much higher - about $500 for the full suite. Again, though, many buy Office pre-installed on new machines or else through volume licenses to corporations, which means they pay much less per person than the full list price. Furthermore, averaging out the up front cost over the usability lifespan of the product makes the yearly cost per user quite low. The amount Microsoft would have to bring in per customer each year starts to seem reasonable.

John ends up admitting, that there would be a strong incentive for customers to subscribe to the ad-free version (or, more to the point, use a reasonably priced, ad-free alternative— probably running on open-source code — from some other vendor).

I didn't go that far. People for whom the benefits of "free (as in cost) software" are outweighed by the nuisance of ads will have an incentive to pay for the ad-free version of the software. I don't think, though, that the trend would be towards people opting for the ad-free version. More likely than not, Microsoft would lose more paying customers to the ad-supported (and free) version than they would gain from those annoyed by ads.

As for moving to the more "reasonably priced" open source alternative, that option exists today, even if its fans love to declare the unassailability of Microsoft's "monopoly" when it suits them to do so. I should think that if the entire market isn't picking up stakes and moving to the open source side of the tracks now, they will have less of an incentive when free versions of Microsoft products exist.

John goes on to explain that Microsoft's unreasonably high prices encourage piracy, and that if well-heeled advertisers instead of impoverished consumers were the ones lining Microsoft's pockets, there would be less incentive for users to turn to pirated copies (he neglects to consider the possibility that the advertisers themselves might choose to go elsewhere)

Nice rhetoric, but you never explained why the point was wrong. Why wouldn't well-heeled advertisers not serve as a revenue stand-in for impoverished consumers who aren't paying to buy Microsoft software, anyway (hence the problem of piracy in the developing world)? When you say that I neglect to consider the possibility that the advertisers themselves might choose to go elsewhere, are you saying they would have no interest in getting product placement ads on the desktop used by most users of Personal Computers (Windows) or the set of products (office automation software) that, after web browsing, are probably the most common tools used on a PC? Why do you think that?

Advertising would neutralize this problem since it would be the developed world's advertisers paying Microsoft instead of third-world consumers (although he neglects to say how advertisers would recoup their outlay).

First, it wouldn't be the developed world's advertisers who would have exclusive access to marketing opportunities (at least, not in my opinion, no idea what Microsoft executives are thinking). Rather, I could see local African companies paying for ads as well. Granted, they would pay less than western companies, but then again, few consumers in the developing world pay for Microsoft software NOW. Certainly a system that yields SOME revenue from the developing world is more financially secure than one that yields practically none...and creates new marketing opportunities to local companies, at least those targeting people who can afford access to a computer.

As for how advertisers would recoup their investment, how do they do it with web ads? Are you saying that all that money advertisers dump into Google, Yahoo, MSN and AOL is about to evaporate in a few years? I simply don't agree. I would argue that the advent of TiVo and the growing percentage of free time spent on the Internet will lead to Internet ads - or software ads in general - becoming even more valuable.

In the end, though, John seems to realize that Microsoft might find it difficult to hit its revenue targets through common-or-garden advertising, so instead he comes up with the idea that users of Microsoft's advertising-funded 'free' software will actually have to give Microsoft sensitive, personal information about themselves before they are allowed to use the 'free' applications.

I'm not sure if Microsoft will find it difficult through garden-variety advertising. I do know, though, that more money can be generated from targeted advertising. I'm not sure whether consumers would accept that, but it HAS been done before. Every time you sign up for a Yahoo email account you give boatloads of personal details, details they use to target ads at you.

Again, this isn't anything unusual, much less revolutionary. This is common practice on the Internet. What you haven't explained to me is why the lessons of the Internet don't apply to desktop software.

All in all, I think it's an idea worth considering," John concludes. Well, I can see why Microsoft would find it appealing. But I don't see anything here that is actually in the interest of advertisers and users, who are the people who are supposed to be the actual customers for this proposition.

Fact 1: Advertisers currently pay lots of money for web ads. Are you saying that money is wasted? If you think it is, I'd point you to Google's share price as proof that lots disagree with that analysis.

Fact 2: Customers would get free versions of Microsoft software, albeit versions supported by ad-revenue. If consumers find the nuisance-factor too high a price to pay, then they won't use it. Evidence suggests, though, that consumers won't find it too high. Most people get their news from free sites like CNN, MSNBC or CNET, not from subscription sites maintained by major print magazines.

Topic: Microsoft

John Carroll

About John Carroll

John Carroll has delivered his opinion on ZDNet since the last millennium. Since May 2008, he is no longer a Microsoft employee. He is currently working at a unified messaging-related startup.

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32 comments
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  • Mixed feelings....

    I can see both sides of the issue here. As for the adoption rate of OpenOffice, it really doesn't come down to price. It comes down to "mindset of the user" and "features". Most PC users still have no clue about OpenOffice. And, for power users, the lack of real Access equivalent prevents them from adopting OpenOffice.

    If both "office products" were functionaly equivalent AND the mindshare were roughly equivalent, THEN and ONLY THEN would you see a migration to the free product.

    Until then, you can't really predict with any accuracy what will happen.

    As for the Windows (OS being free), most consumers don't ever see the cost of Windows since it is bundled with the PC. The only time they see a cost is to upgrade the version of the OS they are using, and even with Opensource products, if you want upgrade/support, you then have to pay. So...the above holds true in regards to the OS as well.

    The main issue I see with the ad-based OS and productivity software is in the business environment. Just what a corporation wants: Their employees paying attention to ads instead of their work!

    That's my two cents (actually it's free, although with my grammar it's probably costing someone enough pain).
    htotten
    • What does Access have to do with it?

      I have had access to Access for the laat 10 years. The number of times that I have started the program to fool around in it is less than 100. Ninety of those were in the salad days of the new Access database from MS. This is when I took the time to create (painfully) a relational database to keep track of faux bets for a Derby Day party. The party was a success; the house won (as always but it wasn't real money) and I never used Access again.

      I can't, for the life of me, understand why any home user could ever care about Access. In the corporate world, it may be useful as a front end to SQL Server but I believe a lot of applications that use Access as a front end to the Back Office could also be readily served by Excel using sets of flat, dynamic, data sets generated by the SQL server.

      Could somebody please tell me something practical that an engineer, graphics artist, architect or other small enterprise/home user do with Access (only Access - just out of the box) that they can't do with Excel?
      jacarter3
      • Connect

        to databases such as SQL, Oracle, db2, and any other ODBC source (accounting packages, etc.). You can then design COMPLEX structured queries (you can't do this with Excel), automated reports, event driven triggers, etc.

        Chances are, the home user will not use Access. But business use it very often for reporting, tracking and supporting other operational issues.
        nomorems
    • not really...

      Chances are, the ad-supported Windows will, at most, resemble WinXP Home in features.

      Unless the corporation is being such a cheapskate, then their best option is to use the non-free Pro version.
      scsi commando
  • Ad based revenue streams...

    are really very lame. Especially if the application is "web served" and you can't use it without a $20 to $40 a month broadband ISP account.

    Why would a retailer want to pay for more exposure than they get in a quality venue like ZDNet? Out of the thousands of flashing, annoying, and load ads that I have been exposed to both here and elsewhere, none have ever lead me to a new product, service, upgrade or opportunity that I have acted on. It's gotten to the point that I filter these out of my perceptual consciousness altogther like the white noise that they are.

    Thanks to ZD for training my neurons to ignore the insignificant and irrevelant ads that are to apparently become some ubiquitous that MS will now innovate with these.
    jacarter3
    • Localization could be the key...

      Maybe businesses much closer to home can take advantage of MS's ad-supported OS. Local ISP's can sign up with Microsoft. Interested businesses can sign with the local ISP for advertisement. User's Windows will display ad content broadcasted by local ISP.

      I don't know the case in other countries, but a internet cafe chain in my country get part of their revenue from advertising. People who use their computers will see the ads displayed on the bottom of the screen. Granted, the ads make for smaller screen for browsing or doing other work, but that still hasn't stop people from going to the cafe.
      scsi commando
      • ISPs will be the gatekeepers - Ad-based software, the next IT war

        First it was the OS wars - Windows versus Apple OS, Windows versus OS/2. Later came the browser wars and Java. The next big battlefront may be free ad-supported software - I'll call it FASTware.

        How will MS use FASTware to dominate the world? Pretty simple.

        A major weapon in MS's fight for its OS monopoly was to force PC manufacturers (OEMs) to ship Windows on every box. The tactic was simple - if an OEM paid for a Windows licence for every PC they shipped, the price was significantly lower than if they wanted to ship Windows on only some PCs and another OS (say OS/2) on others. The licence for Windows also forbade any other OS being loaded on the machine, so dual-boot boxes (say Windows and BeOS or UNIX) were out too.

        Because of the intense price competitiveness of PCs, the difference in the price of the Windows-on-all-PCs licence need only be $20 or so lower than the Windows-on-some-PCs licence to force OEMs to choose the cheaper version and ship Windows on every single box. Customers had to pay extra to have an alternative OS shipped and got no refund for the removed Windows (though that has since changed).

        As a result, many OEMs only shipped PCs with Windows and Microsoft's pursuit of a monopoly got a significant boost. Pretty simple. This tactic was subsequently ruled illegal, but no significant penalty was ever levied on Microsoft and no compensation ever paid to their victims - which included IBMs OS/2, BeOS, DEC OpenVMS and to some extent Apple's Mac OS and various UNIX and Linux OSs.

        But how will that work with ads? Simple really, here's the scenario. I must point out that all of the following is entirely speculation and that no such product as 'OfficeOnline' or Microsoft proprietary ad formats exist to my knowledge, this is an entirely fictitious scenario. But let's not let reality stand in the way of a good rumour!

        Microsoft introduces a FASTware version of Office for use online that only works with Microsoft's IIS server - let's call it 'OfficeOnline'. Any ISP can offer Office-Online, provided they pay a royalty of a few cents per use and use IIS to host their web service. The ISP is then expected to recover that cost from advertisers, and here's the catch.

        The format for putting ads into OfficeOnline is a proprietary Microsoft format, say using their proprietary XML format. Only Microsoft software can be used to create the ads, and only Microsoft software can be used to deliver and display them.

        Since 80% of PC users already use Microsoft software on their PCs and for surfing the web, the advertiser's market is instantly 80% of all online PC users. The advertiser can deliver ads directly to local users via the ISP, so the ads are tightly targeted and can be expected to be much more productive than current web advertising. The ISP becomes the gate-keeper and collector of revenue for MS from the advertiser.

        It only takes a little work with demographics to target users very tightly. The incoming IPv6 address scheme makes it even easier to target individuals on the web (well, not so much an individual but surfers who fit a certain geographic, demographic and PC usage profile). As a result, ads delivered via FASTware can be far more successful than the scattergun approach of current online ads delivered by web sites which can't even be guaranteed to correctly identify the country you are in.

        Ad revenue will very, very quickly move from typical online services to FASTware.

        If one company in one fell swoop can deliver 80% of the FASTware market, then they will very quickly get the vast majority of online advertising dollars - get the picture? This model only works if a significant majority of ISPs and their users are using Microsoft products. The fact that the ads are made using MS software is just a bonus. The requried software will be made very cheap (delivered as FASTware? maybe even ad free?) to keep competition at bay.

        So the only software vendor that can deliver FASTware become MS, no one else can make any money out of it. MS becomes even more entrenched by extending the use of IIS 'cos ISPs want to deliver OfficeOline, users can only get OfficeOnline because that's all ISPs offer and so must use a Windows PC.

        But might not that tactic be ruled illegal? Maybe, but previous experience has shown that if it is, it will only be after the fact. And even if it is, no significant penalty will be levied. So Microsoft can rest secure in the knowledge that any action to stop them will come too late to be of any use, and that any penalty that might ensue won't make any difference to the outcome, though Microsoft may need to pay a trifling fine.

        But will it work? Is it practical? I'll bet there are better minds than mine thinking about it very, very seriously in Redmond.

        Of course OpenOffice can offer an Apache plug-in so that it too can be offered as FASTware. But what ISP will offer a service that they can't collect revenue from? What advertiser will put ads into FASTware that is used by maybe 10% of surfers? What surfer is going to use an ISP that doesn't offer the same FASTware that everyone else uses?

        This ain't an open and shut case!
        Fred Fredrickson
    • Localization could be the key...

      Maybe businesses much closer to home can take advantage of MS's ad-supported OS. Local ISP's can sign up with Microsoft. Interested businesses can sign with the local ISP for advertisement. User's Windows will display ad content broadcasted by local ISP.

      I don't know the case in other countries, but a internet cafe chain in my country get part of their revenue from advertising. People who use their computers will see the ads displayed on the bottom of the screen. Granted, the ads make for smaller screen for browsing or doing other work, but that still hasn't stop people from going to the cafe.
      scsi commando
    • Localization could be the key...

      Maybe businesses much closer to home can take advantage of MS's ad-supported OS. Local ISP's can sign up with Microsoft. Interested businesses can sign with the local ISP for advertisement. User's Windows will display ad content broadcasted by local ISP.

      I don't know the case in other countries, but a internet cafe chain in my country get part of their revenue from advertising. People who use their computers will see the ads displayed on the bottom of the screen. Granted, the ads make for smaller screen for browsing or doing other work, but that still hasn't stop people from going to the cafe.
      scsi commando
  • Some reasons,,,

    1. The net is not as fast or as reliable as internal networks. Performance will be an issue and online apps will gain little or no traction in enterprises.
    2. Advertising is not reliable. The market collapsed after 9/11 and took years to recover. It could happen again.
    3. As Nick Carr said in a response on this issue, markets don't like excess profits -- as more players enter the field that Google now lives by, clutter will drive down ad rates, just like it has with TV and print.
    4. Enterprise customers, the life blood of a $300B company like Microsoft, will be wary of vendors devoting efforts to consumer-oriented low-margin online apps at the expense of the server/desktop.
    5. Microsoft, a mature company in a maturing industry, is not as agile as it used to be -- do you really think it can build a new ecosystem online at the same time it's trying to accelerate the release cycles for traditional platforms like SQL Server and Windows? I don't.
    broper
  • Google, Hotmail, and Zdnet are ad-supported

    As are USAToday, ft.com, slashdot.org, sourceforge.net.
    If you use any of the above services, you're already using ad-
    supported applications. I use them all!
    hipparchus2001
    • Sure they are.

      And you can shut off the ads by turning off your browser or being more selective about what sites you visit. With the typical website, though, the ads are part of the page (except for the popups I usually don't see anymore; thanks Mozilla); rather than a constantly changing billboard that distracts you while you're trying to do useful work (or maybe compose an e-mail).

      Embrace it if you want, but I'd rather not.
      John L. Ries
  • Google, Hotmail, and Zdnet are ad-supported

    As are USAToday, ft.com, slashdot.org, sourceforge.net.
    If you use any of the above services, you're already using ad-
    supported applications. I use them all!
    hipparchus2001
  • Because it's annoying

    Particularly when it flashes and when it puts up images I'd rather not see. At best, it's a distraction; at worst, I'd rather be distracted by my wife than a picture. True, you could go out and pay to get rid of the ads, but I've yet to find such a product that I could justify paying for.

    But you're correct that any harm done would befall MS as customers start looking for alternatives, or hang onto their existing pirated software. Certainly, advertising isn't going to encourage a lot of people who use competing products to switch to MS-Office.

    Possibly why some of the anti-MS posters were applauding the possibility.
    John L. Ries
    • Clarification

      I don't currently use any ad-supported software. Instead, I have opted to use competing packages; thus, I use Pine rather than Eudora (I like Pine better anyway), and Firefox rather than Opera (Opera is nice, but not nice enough).
      John L. Ries
  • Arguing out of both sides of the mouth

    That actually seems to be more of a pro-MS trick. I can name a number of pro-MS posters who have argued in alternate posts that:

    1. MS earned its dominant position by winning the confidence of the average customer who is free to use competing software if he wants. People use MS-products because they want to, not because they have to.

    2. Any fool who delibrately rejects MS-products in favor of the competition is cutting himself off from the vast majority of users, probably making himself unemployable, and undermining the near-universal interoperability that can only be maintained if MS retains its overwealming dominance (which MS is justified in using any means necessary to retain, short of physically assaulting people). Any institution (public or private) that does so is betraying the public trust and punishing the vast majority of users who choose MS-products.

    I've used StarOffice/OpenOffice.org since my OS/2 days in the mid 1990s. I like it, I can use it on both Windows and UNIX/Linux and it's been years since anyone I know has had trouble reading MS-Office format documents I've created there. Certainly, I have no incentive to drop $200+ per machine on MS-Office (which I can only run on Windows) when OOO is a free download and works good enough for my purposes. Making MS-Office available as a free download for the price of watching ads doesn't really change the equation, since I can use OOO without watching ads.
    John L. Ries
    • Extrapolation

      One tactic Microsoft employed very successfully in gaining their OS monopoly was to force OEMs to ship Windows, and only Windows, on every box they shipped.

      The equivalent for 'free add' software would be to force advertisers to post all their on-line ads in Microsoft software. e.g. if you put all your on-line ads in Office-Online, you pay X. but if you put some in Office-Online and some elsewhere, the price is some multiple of X (hey, it worked for their OS). They could even extend it to IE for general surfing.

      The result would be that no other ad supported on-line software could get any revenue; maybe even Google's revenue stream could be choked off.

      I don't think MS could possibly pull that off, the advertising market is far more diverse than PC manufacturing - do you think they'd try? Will globalisation make it a practical possibility?
      Fred Fredrickson
    • Extrapolation

      One tactic Microsoft employed very successfully in gaining their OS monopoly was to force OEMs to ship Windows, and only Windows, on every box they shipped.

      The equivalent for 'free add' software would be to force advertisers to post all their on-line ads in Microsoft software. e.g. if you put all your on-line ads in Office-Online, you pay X. but if you put some in Office-Online and some elsewhere, the price is some multiple of X (hey, it worked for their OS). They could even extend it to IE for general surfing.

      The result would be that no other ad supported on-line software could get any revenue; maybe even Google's revenue stream could be choked off.

      I don't think MS could possibly pull that off, the advertising market is far more diverse than PC manufacturing - do you think they'd try? Will globalisation make it a practical possibility?
      Fred Fredrickson
  • I gave you five reasons yesterday.

    See my post: Revisited
    No_Ax_to_Grind
    • Yeah, I saw them...

      I'll respond to them later, either as a blog post or in the talkbacks. Just got underwater with work this week, making it harder to stay on top of the talkbacks.
      John Carroll